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This is because economic behaviour changes, and it can be seen in, for example, changes in employers' decisions about numbers of employees and wages following the increases in National Insurance and the Minimum Wage in the 2024 budget.
That was just the latest excuse trotted out by employers for doing what they always do- trying to get more people to do more work for less money.
In simple terms, NICs are 15% of gross wage, so it doesn't matter how many individuals are earning, it's effectively a wagebill tax. The one change that did upset employers was reducing the NIC-free threshold from £9,100 to £5,000 per year; that meant they were paying NICs on more of the wages paid out. Employers have tried to argue that this means they now can't accommodate flexible working, but this is rubbish. It has upset them because it means that the zero-hours contracts nonsense becomes less of a loophole. As for cutting headcount, the tax shouldn't influence this- if anything, reducing headcount is counter-productive as two employees earning £30,000 both benefit from the £5,000 NIC-free amount, whereas one employee earning £60,000 only benefits from the one NIC-free amount.
But how else do you work out what tax someone should pay, I Suggested basing it on a known amount, so that it can be worked out accurately, and based on previous earnings over the last 12 months, seemed a fair idea,
Taxation is IMHO more complicated than need be, up to a certain point you pay a set amount, then it becomes very hard to understand how the various bands affect what you actually pay, if you're a high earner, you might be paying over several bands simultaneously, but what is the actually percentage of tax paid, overall? is it actually lower than someone would pay on PAYE?
Benefits etc, child allowance, couldn't these be disregarded for taxation purposes?
I suggested that you look at how tax accounts actually work - then, as @Bletchleyite says, you'd realise how well Income Tax works for the vast majority of taxpayers. Very simply, this works as follows:
Each taxpayer's Income Tax is worked out as an annual sum, from 6th April each year
We each have a Personal Allowance, setting out how much we can earn before we have to pay Income Tax
HMRC issue a Tax Code to each person, which they share with their employer, so that Income Tax can be deducted from the pay packet
This information is shared with HMRC every time a payroll is run*
HMRC review that information and may recalculate the Tax Code if that person is going to overpay or underpay in the tax year
Where overpayments or underpayments are made, they are usually caught up in the following year's tax code
If you are paid by a number of employers (or have multiple pensions), this all gets included in the calculations. It's also worth note that this is about an individual, and the tax system makes little or no provision for linking couples or families.
What has been visible in this thread is the way that people thinking "the rich should pay more" are getting confused between the roles of tax bands and personal allowances.
For a long time, Income Tax was nice and simple. As your income rose, so you got moved onto higher tax bands. That meant a Higher Rate Taxpayer would pay some at 0%, some at 25%, and some at 40%. Chancellors then complicated this in two ways.
One was that they raised tax by removing allowances. That means that, instead of paying a higher rate (which is politically sensitive), some taxpayers pay more because they lose their tax free allowance and/or benefits (the step up at £100k is especially significant here). The other was that they started to try to tax benefits going to higher earners. Because they don't have a way of treating couples as couples, they've fudged it - and done so using rates that don't align to the tax bands.
The result is messy and complicated.
All of the above is talking about employees. It gets more complicated for the self-employed, or those with income that isn't through payroll. There are circumstances where they may pay at a lower rate than if they were paying Income Tax, but that's because they may get money as a dividend, or as the result of taking a genuine commercial risk. There are then a range of other complications - for example those who live in tied accommodation.
People in these categories tend to have to provide a Tax Return under Self Assessment. I've just done mine (a result of the Child Benefit changes), and most of it is just confirming what HMRC have already taken under PAYE. The other bits and pieces then go into the calculations (e.g. Interest increases the income I'm assessed on, Gift Aid donations reduce it).
* - this was introduced 10 or 12 years ago, and was required to make Universal Credit work so that the system could adapt during the year to changing circumstances.
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That was just the latest excuse trotted out by employers for doing what they always do- trying to get more people to do more work for less money.
In simple terms, NICs are 15% of gross wage, so it doesn't matter how many individuals are earning, it's effectively a wagebill tax. The one change that did upset employers was reducing the NIC-free threshold from £9,100 to £5,000 per year; that meant they were paying NICs on more of the wages paid out. Employers have tried to argue that this means they now can't accommodate flexible working, but this is rubbish. It has upset them because it means that the zero-hours contracts nonsense becomes less of a loophole. As for cutting headcount, the tax shouldn't influence this- if anything, reducing headcount is counter-productive as two employees earning £30,000 both benefit from the £5,000 NIC-free amount, whereas one employee earning £60,000 only benefits from the one NIC-free amount.
Precisely. It's a payroll tax, and the change means that lower paid workers become disproportionately more expensive to employ. For small employers, it's offset by other changes, but only for small employers.
I'm a trustee of a charity that saw a 5 figure increase in our payroll, without notice, as a result of that change. These are full time employees on PAYE - just a pure rise in tax. We're lucky in having reserves to lean on for that, but I've every sympathy with employers facing that challenge.
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Water and Utilities, everyone now is paying more for a poorer service,, My stance on Water is that the companies need bringing back into public ownership, and converted into not for profit companies, with all receipts being plowed back into the industry, not in shareholder profits, short term, it will need investment, and most people will accept a small increase in government debt for infrastructure work, that of course, will provide employment and those employed will be paying tax,
The Post Office is nationalised, and the Treasury (as sole shareholder) demanded a return - and refused to allow it to stop paying a dividend.
Meanwhile the idea that there's a financial perpetual motion machine that allows government to pay £100 to staff, and it doesn't count because they get £40 back in tax just doesn't work.
What employers say is hissing, it is what they do that matters for impact on tax revenue.
My point is that the government, when it makes a tax change, can't assume that nothing else will change. Tax payers can't do nothing, and each of them make a choice from various options. In the example of the National Insurance and Minimum Wage changes, the government has to try to estimate the overall revenue change, taking into account that some employers will absorb the increased cost through reduced profits, some will increase prices, some will reduce headcount, some will give their employees a smaller wage increase, and a few of them will cease trading.
I'm a trustee of a charity that saw a 5 figure increase in our payroll, without notice, as a result of that change. These are full time employees on PAYE - just a pure rise in tax.
That's presumably because the lower earnings threshold dropped from £9,100 to £5,000. Although the small business exemption was also increased from £5,000 to £10,000, so small employers shouldn't have seen too much difference.
What employers say is hissing, it is what they do that matters for impact on tax revenue.
My point is that the government, when it makes a tax change, can't assume that nothing else will change. Tax payers can't do nothing, and each of them make a choice from various options. In the example of the National Insurance and Minimum Wage changes, the government has to try to estimate the overall revenue change, taking into account that some employers will absorb the increased cost through reduced profits, some will increase prices, some will reduce headcount, some will give their employees a smaller wage increase, and a few of them will cease trading.
Of course the government eventually had to pull that particular lever because it's one of the few corporate taxes that can't be offshored. Which is another factor into that decision that doesn't get talked about much.
That's presumably because the lower earnings threshold dropped from £9,100 to £5,000. Although the small business exemption was also increased from £5,000 to £10,000, so small employers shouldn't have seen too much difference.
The charity of which I'm a trustee is not a "small employer". On a payroll of 100 (an understatement), the impact would be ((100 employees * £4100) * 15%) - £10k exemption = £51,500.
That's an ongoing cost, that has to be factored into every vacancy that arises, and all of which has to be added to our fundraising requirement.
My daughter is in 6th form. Judging by her conversations with friends, vacancies in classic 6th former jobs (shop work, waiting, etc) are much tighter than before - and employers are explicitly mentioning the cost of Employer NI.
vacancies in classic 6th former jobs (shop work, waiting, etc) are much tighter than before - and employers are explicitly mentioning the cost of Employer NI.
That's different to it being "disproportionately more expensive" to employ lower-paid workers though.
For some businesses they will decide to try and make do with fewer staff than before, or to pay them less. But if there are, say, 60 manhours a week of work to be done then it doesn't really matter if you're paying one person for 60 manhours or two people for 30 manhours each (in fact, because of the £5,000 threshold the latter may be slightly cheaper).
That's different to it being "disproportionately more expensive" to employ lower-paid workers though.
For some businesses they will decide to try and make do with fewer staff than before, or to pay them less. But if there are, say, 60 manhours a week of work to be done then it doesn't really matter if you're paying one person for 60 manhours or two people for 30 manhours each (in fact, because of the £5,000 threshold the latter may be slightly cheaper).
You ignore the role of minimum wage, and of the way the previous earning threshold exempted many lower paid, lower hours, workers from incurring employers' NI. There will be some winners, in the smallest organisations, as the two offset each other - but even there, the impact needs care (the way the employer claims the concession, they get it on the first £10k of Employers NI in the tax year. That will mean the effective cost rises in the latter half of the financial year - something that will be particularly challenging for smaller businesses to manage.
You ignore the role of minimum wage, and of the way the previous earning threshold exempted many lower paid, lower hours, workers from incurring employers' NI.
The changes mean it is more expensive to pay people. That will, in some cases, suppress wage rises. Given that the government were worried about wage inflation, the government will see this as a win.
But that's not the same thing as making it disproportionately more expensive to employ low-paid workers.
Your business needs 70 manhours of work to be done each week. The NIC changes mean the cost of those 70 hours have gone up. But it isn't any more expensive to pay one person for 70 hours work as it is to pay two people 35 hours; indeed, the latter should still be marginally cheaper because of the two tax-free amounts.
At the edges it may discourage employers from stacking their businesses with tons of people on zero hours contracts, all of them earning just under £9,000 a year. I'm not sure that's necessarily a bad thing, overall.
The changes mean it is more expensive to pay people. That will, in some cases, suppress wage rises. Given that the government were worried about wage inflation, the government will see this as a win.
But that's not the same thing as making it disproportionately more expensive to employ low-paid workers.
Your business needs 70 manhours of work to be done each week. The NIC changes mean the cost of those 70 hours have gone up. But it isn't any more expensive to pay one person for 70 hours work as it is to pay two people 35 hours; indeed, the latter should still be marginally cheaper because of the two tax-free amounts.
At the edges it may discourage employers from stacking their businesses with tons of people on zero hours contracts, all of them earning just under £9,000 a year. I'm not sure that's necessarily a bad thing, overall.
But, using your example, it is more expensive to pay 7 people to work 10 hours each. Nothing to do with zero hours, just often the reality of small businesses using part time labour.
No it isn't. You save £615 (15%*£4,100) per year for each time you add someone to your headcount. So ten people doing seven hours each is cheaper than five people doing fourteen hours each, etc etc.
What the threshold cut does do at the edges is dissuade employers from deliberately restricting someone's hours to keep them below £9,100. Clearly it's harder to do that when the threshold is now only £5,000. Losers here will be employees who were happy to earn between £5,001 and £9,099 (students being the obvious example), but that's a fairly small category of people.
No it isn't. You save £615 (15%*£4,100) per year for each time you add someone to your headcount. So ten people doing seven hours each is cheaper than five people doing fourteen hours each, etc etc.
What the threshold cut does do at the edges is dissuade employers from deliberately restricting someone's hours to keep them below £9,100. Clearly it's harder to do that when the threshold is now only £5,000. Losers here will be employees who were happy to earn between £5,001 and £9,099 (students being the obvious example), but that's a fairly small category of people.
I don't get your maths, and I think they're the wrong way round.
The old position was that an employer paid NI on each employee earning over £9,100/year. They now pay it for each employee earning over £5,000/year, offset by up to £10k per tax year in reduced Employer payments; small businesses used to get a £5k allowance (up to a maximum 10 employees).
The effect may appear relatively minor, but it is compounding a labour shortage in the hospitality trade. It increases the direct cost of employing people in that gap by 15%, which comes directly out of the margins of the business. If the employer can bear that, so be it; if not, it means increasing prices and/or taking other measures to reduce costs. Judging by the impact on entry level jobs, that means a significant reduction in hiring.
That may only be affecting a relatively small niche of employees (though a serious Equality Impact Assessment would be interesting to read), but in doing so it is undermining a key step into employment as people take on those kind of jobs. In some sectors - adult and nursery care, especially - it is also cutting across other government policy objectives by making providers less sustainable, and increasing the costs of provision.
I don't get your maths, and I think they're the wrong way round.
The old position was that an employer paid NI on each employee earning over £9,100/year. They now pay it for each employee earning over £5,000/year, offset by up to £10k per tax year in reduced Employer payments; small businesses used to get a £5k allowance (up to a maximum 10 employees).
For each individual employee, NICs are only paid on the salary above £5,000 (was £9,100) per year. This means that there are no NICs to pay on the first £96 per week that an employee earns.
So my maths are wrong and I undercounted it. The saving should be 15% x £5,000, so £750 per year.
To use my example, 70 manhours of work a week are required and it doesn't matter how many or how few employees do it, so long as the work is done. To keep the numbers simple, each hour costs £10, so £700 per week payroll cost overall.
So if you have one employee you overall pay NIC of £90.60 per week. But if you have two employees you overall pay NICs of £76.20; three, you only overall pay NICs of £61.80.
Employers saying they won't consider job shares because of the NIC rules either don't understand them or they are lying.
For each individual employee, NICs are only paid on the salary above £5,000 (was £9,100) per year. This means that there are no NICs to pay on the first £96 per week that an employee earns.
So my maths are wrong and I undercounted it. The saving should be 15% x £5,000, so £750 per year.
To use my example, 70 manhours of work a week are required and it doesn't matter how many or how few employees do it, so long as the work is done. To keep the numbers simple, each hour costs £10, so £700 per week payroll cost overall.
So if you have one employee you overall pay NIC of £90.60 per week. But if you have two employees you overall pay NICs of £76.20; three, you only overall pay NICs of £61.80.
Employers saying they won't consider job shares because of the NIC rules either don't understand them or they are lying.
The maths still doesn't work - the previous position was that Employers NI only kicked in at £9,100. So that is £4,100 of additional earnings per employee that are in scope for Employers' NI. For your scenario to be accurate, you would have to do the comparison between the old and new arrangements to assess the cost per employee.
Under the old rules, the threshold for paying NI would have been £123 per week. So the consequence of your example is that for 2 employees, the employer is paying an additional £8.15/week in order to employ them in April 2025 than they were, for the same work, in March 2025.
If the work is spread equally among 7 employees, each doing 10 hours per week, the difference is clearer. Under the old rules, no Employers' NI was payable at all. Under the new rules, NI will be payable the moment they hit £96/week - a cost that immediately hits the bottom line. The incentive, at that point, is to suppress the number of hours worked so that the threshold isn't hit.
It is still cheaper, at least in terms of NICs, to have more employees working fewer hours. So there is no disincentive for employers to hire people on part time contracts.
Anyone who says NICs influence this either misunderstand the rules or they are lying. I suspect in many cases it is the former, and that many employers simply don't understand that they don't pay NICs on the first £5,000 and they think that they pay 15% on the whole lot.
The cost of the extra NICs will, of course, increase costs (which is the plan- it is a tax rise) and will no doubt cause wage growth stagnation (which is the plan- they are trying to reduce wage inflation).
But the ultimate question remains: either the work needs doing, or it doesn't. Maybe in some cases employers decide it doesn't need doing.
It is still cheaper, at least in terms of NICs, to have more employees working fewer hours. So there is no disincentive for employers to hire people on part time contracts.
Anyone who says NICs influence this either misunderstand the rules or they are lying. I suspect in many cases it is the former, and that many employers simply don't understand that they don't pay NICs on the first £5,000 and they think that they pay 15% on the whole lot.
The cost of the extra NICs will, of course, increase costs (which is the plan- it is a tax rise) and will no doubt cause wage growth stagnation (which is the plan- they are trying to reduce wage inflation).
But the ultimate question remains: either the work needs doing, or it doesn't. Maybe in some cases employers decide it doesn't need doing.
I'm sure they will. And some of them will find not that it doesn't need doing, but that it is not economically viable to employ people to do it - bearing in mind that there are fixed costs per employee over and above the paybill (wage/tax/NI) costs.
That brings us back round to it being a tax rise. It is indeed. And it is a tax on employment. Not on wages, but on employment, borne by employers and met by them. In an economy where the ability to deliver the government's objectives is constrained by the amount of cash required on one side, and political promises on tax rates on the other, measures that discourage employment are just counter-productive.
That brings us back round to it being a tax rise. It is indeed. And it is a tax on employment. Not on wages, but on employment, borne by employers and met by them.
Employers only pay if they absorb the increased cost through reduced profit.
If the employer raises prices, then their customers pay.
If the employer reduces headcount, or gives a lower pay rise, then their employees pay.
If the employer ceases trading, and is insolvent, then their creditors pay.
Employers only pay if they absorb the increased cost through reduced profit.
If the employer raises prices, then their customers pay.
If the employer reduces headcount, or gives a lower pay rise, then their employees pay.
If the employer ceases trading, and is insolvent, then their creditors pay.
but (4) hits a lot of doctors and makes them work part time (most people on low six figures get around it by contributing to pension instead but this doesn't really make as much sense for a doctor).
And, pertinently to this forum, train drivers. This is one reason why there are fewer volunteers for Rest Day Working and Sundays at some TOCs than there were a few years ago.
And, pertinently to this forum, train drivers. This is one reason why there are fewer volunteers for Rest Day Working and Sundays at some TOCs than there were a few years ago.
Part of it is that it's politically difficult to do anything about even though the reality is 100k is not a large salary any more. It's about 95th percentile but then you consider that so many salaries are "entry level", the truely rich are not (mostly) salaried, etc etc and it becomes a lot less than that. The problem is that it sounds like it is to a lot of the country cause at one time (and I think when some of these cliff edges were put in) it really was. Up here if you are a fifty something and own your own home outright (and you very likely do) you can live like a king on that - the only reason you're not shopping at Waitrose is the nearest one is in Hexham .
Whereas in London if you're a single graduate with a student loan you probably can't even afford to rent a flat by yourself and have to flatshare, never mind putting roots down or anything. You may well be shopping at Waitrose but that's because everything down there is so expensive anyway it makes sod all difference and anyway everything around you is targetted at those older than you with cash and you don't have a car so don't have a choice anyway.
In the latter case the tax rates really are extraordinarily confiscatory given we're taking a living condition that I don't think most people around here would accept. But if I ventured that opinion up here I'd get looked at as if I was on Mars.
I still think that the universal credit taper is more disgraceful though. As is the 16 hour thing. Ultimately it's the poorest that are getting shafted most. Where is social mobility?
Most flights in these groups compete with the rail industry, so it would probably be better to look at why rail is so uncompetitive despite having seemingly numerous advantages (heavy subsidies, and generally passengers prefer it eg Eurostar).
Making flights more expensive doesn't improve the rail industry, on the contrary it creates an artificial advantage meaning it has to try (even) less hard to compete and pushes up rail fares due to the shifted demand.
Most flights in these groups compete with the rail industry, so it would probably be better to look at why rail is so uncompetitive despite having seemingly numerous advantages (heavy subsidies, and generally passengers prefer it eg Eurostar).
The major disadvantage that rail has is the cost of its fixed infrastructure, and the length of time the journey takes.
It should be fairly obvious that a plane travelling at 500 mph can travel further than a train at 125 mph, and is therefore more productive over longer distances. The railway needs to compete by being able to convey more people in each train than the plane can.
Can tax sensibly counteract the advantages each has?
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